SRV.UN Sir Royalty Income Fund

BURLINGTON, ON, Nov. 24, 2022 /CNW/ - SIR Royalty Income Fund (TSX: SRV.UN) (the "Fund") today announced that SIR Corp. ("SIR" or the "Company"), the operating entity from which the Fund's equity income is ultimately derived, has filed its financial results for the 16-week and 52-week periods ended August 28, 2022 ("Q4 2022" and "Fiscal 2022", respectively). SIR's audited consolidated financial statements and management's discussion & analysis ("MD&A") for Q4 2022 / Fiscal 2022 can be accessed via the Fund's profile on the SEDAR website at www.sedar.com under "Other", or the SIR website at www.sircorp.com/sir-royalty-income-fund/financial-reports.

Q4 2022 Business Update

• The state of the restaurant and bar industry continued to trend positively during Q4 2022 due to the absence of government-mandated operating restrictions. As of mid-March 2022, all of the remaining indoor dining operating restrictions in each of the provinces where SIR operates were lifted.
• Food and beverage revenue from corporate restaurant operations increased 75.6% to $88.0 million, compared to $50.1 million in the 16-week period ended August 29, 2021 ("Q4 2021").
• Consolidated Same Store Sales ("SSS")¹ increased 73.8%.
• SIR began offering Renegade Chicken takeout and delivery services again on a trial basis as of January 27, 2022. The services were initially offered out of 21 Jack Astor's® locations in Ontario, with two additional Jack Astor's locations added to the trial as of February 16, 2022. SIR agreed to pay an amount equal to 6% of the revenues earned to the SIR Royalty Limited Partnership (the "Partnership"). The trial was initially scheduled to continue until March 31, 2022, at SIR's option. Effective March 29, 2022, SIR opted to extend the trial until August 28, 2022, but reduced the number of Jack Astor's locations supporting the trial to eight locations. On August 29, 2022, the Trustees of the Fund approved a further extension of the trial, under the existing terms, until December 31, 2022.
• The last remaining Canyon Creek® restaurant, located in Etobicoke, Ontario, in close proximity to Pearson International Airport, was permanently closed effective May 23, 2022. SIR opened a new Scaddabush Italian Kitchen & Bar® ("Scaddabush") restaurant at this location in August 2022, which is expected to be added to the Royalty Pooled Restaurants effective January 1, 2023.
• SIR made its final scheduled deferral payment of royalties owing to the Partnership and interest on the SIR Loan owing to the Fund on June 15, 2022.
• On June 16, 2022, SIR entered into the Ninth Amending Agreement ("Ninth Amendment") to its Credit Agreement with its Lender, and the Fund and the Partnership entered into an acknowledgement agreement with the Lender. The Ninth Amendment among other things, extends the maturity date of the Credit Agreement from July 6, 2022 to July 6, 2023, with no change in pricing, and the financial covenants related to the Credit Agreement revert to the pre-pandemic financial covenants.

Results of Operations Summary

SIR has advised the Fund that food and beverage revenue from corporate restaurant operations increased to $88.0 million in Q4 2022, compared to $50.1 million in Q4 2021. Food and beverage revenue from corporate restaurant operations increased to $221.7 million in Fiscal 2022, compared to $107.9 million for the 52-week period ended August 29, 2021 ("Fiscal 2021"). The increases in Q4 2022 and Fiscal 2022 were primarily attributable to same store sales growth ("SSSG")¹ due to the gradual easing and eventual lifting of pandemic-related operating restrictions in the markets in which SIR restaurants are located.

SSS¹ performance includes all SIR restaurants, except for those restaurants that were not open for the entire comparable periods in Fiscal 2022 and Fiscal 2021, and the Abbey's Bakehouse® retail outlet as it's not a SIR restaurant.

Net earnings and comprehensive income was $1.1 million for Q4 2022, compared to a net loss and comprehensive loss of $28.4 million for Q4 2021. Net loss and comprehensive loss was $49.7 million for Fiscal 2022, compared to a net loss and comprehensive loss of $61.8 million for Fiscal 2021. The variances reflect changes in the amortized cost of the Ordinary LP Units and Class A Units of the Partnership that SIR holds. This resulted in expenses of $5.2 million and $65.4 million in Q4 2022 and Fiscal 2022, respectively, compared to expenses of $35.4 million and $60.6 million in Q4 2021 and Fiscal 2021, respectively. These non-cash changes in Q4 2022 and Fiscal 2022 are due to increases in the underlying unit price of the Fund compared to the end of the Q3 2022 and the end of Q4 2021, respectively.

Adjusted Net Earnings² were $6.3 million in Q4 2022, compared to $7.0 million in Q4 2021. Adjusted Net Earnings² for Fiscal 2022 were $15.8 million, compared to an Adjusted Net Loss² of $1.1 million in Fiscal 2021.

Liquidity and Capital Resources

As at August 28, 2022, SIR had cash and equivalents of $8.1 million, compared to $9.6 million as at August 29, 2021. As at August 28, 2022, SIR had drawn $19.7 million against the $46.2 million maximum principal borrowing under the Company's credit facility.

Outlook

As of mid-February 2022, the state of the restaurant and bar industry has been trending positively due to increased vaccination rates and the easing of pandemic-related government restrictions. As of mid-March 2022, all remaining operational restrictions in the provinces where SIR operates were lifted.

The new Reds Kitchen + Wine Bar Fallsview, opened on March 31, 2022, and the new Scaddabush in Etobicoke, Ontario, opened on August 1, 2022, are both expected to be added to the Royalty Pooled Restaurants effective January 1, 2023.

Subsequent to the end of Fiscal 2022, SIR completed restaurant renovations to its Jack Astor's locations in Whitby and Barrie, Ontario. SIR plans to invest in similar restaurant renovations in Fiscal 2023. SIR expects to drive future sales growth through a combination of measured new restaurant growth and investments in its existing restaurants over the long term. 

Reconciliation of Adjusted Net Earnings²

The following table reconciles net earnings (loss) and comprehensive income (loss) for the 16-week and 52-week periods ended August 28, 2022 and August 29, 2021, respectively, to Adjusted Net Earnings (Loss)²:

About SIR Corp.

SIR Corp. ("SIR") is a privately held Canadian corporation that owns a portfolio of 53 restaurants in Canada. SIR's Concept brands include: Jack Astor's Bar and Grill®, with 37 locations; and Scaddabush Italian Kitchen & Bar® with 10 locations. SIR also operates one-of-a-kind "Signature" brands including Reds® Wine Tavern, Reds® Square One, Reds® Kitchen + Wine Bar Fallsview and The Loose Moose®. All trademarks related to the Concept and Signature brands noted above are used by SIR under a License and Royalty Agreement with SIR Royalty Limited Partnership. SIR also owns one Duke's Refresher® & Bar location, in downtown Toronto, and one seasonal Signature restaurant, Abbey's Bakehouse®, which are currently not in consideration to be part of the Royalty Pool. For more information on SIR Corp. or the SIR Royalty Income Fund, please visit www.sircorp.com.

About SIR Royalty Income Fund

The Fund is a trust governed by the laws of the province of Ontario that receives distribution income from its investment in the SIR Royalty Limited Partnership and interest income from the SIR Loan. The Fund intends to pay distributions to unitholders on a monthly basis.

(1) Same store sales ("SSS") and same store sales growth ("SSSG") are non-GAAP financial measures and do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS"). However, SIR believes that SSS and SSSG are useful measures and provide investors with an indication of the change in year-over-year sales. SIR's method of calculating SSS and SSSG may differ from those of other issuers and accordingly, SSS and SSSG may not be comparable to measures used by other issuers. SSSG is the percentage increase in SSS over the prior comparable period. SSS includes revenue from all SIR restaurants except for those restaurants that were not open for the entire comparable period and Abbey's Bakehouse in Muskoka, Ontario as it is not a SIR Restaurant. When a SIR Restaurant is closed, the revenue for the closed restaurant is excluded from the calculation of SSS and SSSG for both the quarter in which the restaurant is closed and the current year-to-date.

(2) Adjusted Net Earnings (Loss) is calculated by removing the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership from the net earnings (loss) for the period. Adjusted Net Earnings (Loss) is a non-GAAP financial measure and does not have a standardized meaning prescribed by IFRS. Management believes that in addition to net earnings (loss), Adjusted Net Earnings (Loss) is a useful supplemental measure to evaluate SIR's performance. Changes in the amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership is a non-cash transaction and varies with changes in the market price of the Fund units. The exclusion of the change in amortized cost of the Ordinary LP Units and Class A LP Units of the Partnership eliminates this non-cash impact. Management cautions investors that Adjusted Net Earnings (Loss) should not replace net earnings or loss or cash flows from operating, investing and financing activities (as determined in accordance with IFRS), as an indicator of SIR's performance. SIR's method of calculating Adjusted Net Earnings (Loss) may differ from the methods used by other issuers. Please refer to the reconciliations of net earnings (loss) to Adjusted Net Earnings (Loss) for Q4 2022 and Fiscal 2022 provided in this news release.

Caution concerning forward-looking information

Certain statements contained in this report, or incorporated herein by reference, including the information set forth as to the future financial or operating performance of the Fund or SIR, that are not current or historical factual statements may constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning the objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of the Fund, the SIR Holdings Trust (the "Trust"), the Partnership, SIR, the SIR Restaurants or industry results, are forward-looking statements. The words "may", "will", "should", "would", 'could", "expect", "believe", "plan", "anticipate", "intend", "estimate" and other similar terminology and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Fund, the Trust, the Partnership, SIR, the SIR Restaurants or industry results, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. These statements reflect Management's current expectations, estimates and projections regarding future events and operating performance and speak only as of the date of this document. Readers should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. Risks related to forward-looking statements include, among other things, challenges presented by a number of factors, including: the impact of the COVID-19 pandemic; market conditions at the time of this filing; competition; changes in demographic trends; weather; changing consumer preferences and discretionary spending patterns; changes in consumer confidence; changes in national and local business and economic conditions; pandemics or other material outbreaks of disease or safety issues affecting humans or animals or food products; the ability to maintain staffing levels;  the impact of inflation, including on input prices and wages; the impact of the crisis in the Ukraine; changes in tariffs and international trade; changes in foreign exchange and interest rates; changes in availability of credit; legal proceedings and challenges to intellectual property rights; dependence of the Fund on the financial condition of SIR; legislation and governmental regulation, including the cost and/or availability of labour as it relates to changes in minimum wage rates or other changes to labour legislation and forced closures of or other limits placed on  restaurants and bars; laws affecting the sale and use of alcohol (including availability and enforcement); changes in cannabis laws; changes in environmental laws; privacy matters; accounting policies and practices; changes in tax laws; and the results of operations and financial condition of SIR. The foregoing list of factors is not exhaustive. Many of these issues can affect the Fund's or SIR's actual results and could cause their actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Fund or SIR.  There can be no assurance that SIR will remain compliant in the future with all of its financial covenants under the Credit Agreement and imposed by the lender. Given these uncertainties, readers are cautioned that forward-looking statements are not guarantees of future performance and should not place undue reliance on them. The Fund and SIR expressly disclaim any obligation or undertaking to publicly disclose or release any updates or revisions to any forward-looking statements. Forward-looking statements are based on Management's current plans, estimates, projections, beliefs and opinions, and the Fund and SIR do not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change, except as expressly required by applicable securities laws.

In formulating the forward-looking statements contained herein, SIR Management has assumed that it will be successful in dealing with the effects of the COVID-19 pandemic and that business and economic conditions affecting SIR's restaurants and the Fund will return to normalcy within the short to medium term. For more information concerning risks and uncertainties, please refer to the Fund's March 22, 2022 Annual Information Form, for the period ended December 31, 2021, and the Fund's most recent interim filings, which are available under the Fund's profile at www.sedar.com.

All of the forward-looking statements made herein are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Fund or SIR. See 'Risk Factors' in the Fund's Annual Information Form dated March 22, 2022 for the period ended December 31, 2021.

SOURCE SIR Royalty Income Fund